Give your finances a new year makeover

have choices later in our life about where and how we live.

Controlling how we spend is critical to how our financial future will turn out. This is why any financial plan starts with a budget. It might sound boring, but the ability to delay immediate gratification is a human development that separates us from other animals. Celebrate the power it gives you, and your budget.

I am a fan of “sludging and nudging” to set ourselves up for success. Sludging is when we find ways to add friction to spending habits, while nudging adds momentum to saving.

By delaying the pay day or spreading the cost, credit providers deliberately disconnect the pain of losing money on a purchase from the enjoyment of buying something. So, one of the obvious sludges is to reconnect the buying decision to immediate payment. Practical tips here include leaving your credit card at home when shopping, or agreeing with an “accountability partner” that they will hold your credit cards and you will discuss a purchase with them before proceeding. You can also remove your payment details from apps to end oneclick ordering and put a space between the decision and the action.

Another sludging trick is to convert the “cost” of something that has caught your eye to an immediately quantifiable and relevant value. Example: a new item of furniture or outfit costs £500. How many hours of work does that equate to? Do I want it enough to do an additional 20 hours of work?

To make sure we don’t learn to spend every penny we earn – and as human beings we are inclined to let our lifestyle creep up as we have more disposable income – we need to take intentional steps to avoid this. One is to regularly move money out of your normal spending account to a savings or investment account. Having a standing order at your bank to divert some of your pay from your current account as soon as your income lands helps to ensure the saving or investing happens and you learn to manage on the money left.

We are blessed these days with great apps that help us categorise spending, and take on some automated “sludging and nudging”. Apps such as Plum, Emma and Snoop Finance connect to your bank and other financial accounts using Open Banking technology to analyse your spending to show where your money is going, with some using algorithms to decide whether you could afford to save more.

Even if you don’t opt for a specialised app, taking some time to review spending often ends up providing some surprising and useful information. It all starts with knowing what you are currently doing with your money and asking yourself if that is serving your long-term goals as well as satisfying your short-term urges.